Occam’s Razor

For Obama: some environmental cheers and jeers

No candidate running for president will run a perfect campaign and that certainly includes Barack Obama. When I endorsed him in January, I said he too was a flawed candidate. Overall, Mr. Obama has pleasantly surprised me with his post nomination campaign. He comes across as very thoughtful and articulate. It is clear that his campaign is remarkably well managed and on message.

If a presidential candidate is serious about winning, some accommodation toward the politically fickle winds of the moment is generally considered necessary. So we have seen in the last few days some statements by Barack Obama that have my head shaking. Pandering may seem necessary when winning at all costs is the goal, but when it happens it lowers my opinion of the candidate.

Obama’s proposal to release oil from the Strategic Petroleum Reserve was one of these political accommodations that made me wince. What a bad idea! Yes, I know his plan is to remove the easily refined light sweet crude oil from the SPR and replace it with the harder to refine heavy crude oil. This is supposed to result in no net loss from the SPR. As a result, he believes this will provide some working relief to the middle class, which is still reeling from the latest oil shock.

The SPR is there for a reason: to accommodate the nation’s needs in a national emergency. No such emergency exists. I grant that many families are suffering under the burden of $4 a gallon gasoline. Still, the economy is in no danger of collapse. Artificially lowering gas prices, if it works, simply encourages more of the dependence that got us in trouble in the first place. Obama says such a release would be temporary. He points to the effect of a decision made late in the Clinton administration to sell oil from the SPR and says that decision reduced gas prices. It is unclear whether it would have that effect today, but it would make it harder for America to get over its addiction to oil and move toward a post oil age. This is a politically expedient decision but overall a call I think he will regret.

Another bad call: tacitly agreeing with John McCain that we need to drill for oil off our coasts. Obama characterizes this change of heart as one part of an overall energy strategy and suggests such drilling would be limited. He knows that any oil we discovered would have but the most modest effect on oil prices. If oil companies started drilling tomorrow, it would be at least six years before we would see any oil from these fields.

There are a few reasons that oil companies are not drilling in these tracts that they are already allowed to drill in. Their geologists have surveyed these oil fields. The likelihood of getting oil in the quantity desired is slim and the cost of drilling in these deeper waters is high. In addition, you cannot force an oil company to drill for oil. Oil companies will look out for their bottom line, and if it does not increase it they will politely spurn politicians’ suggestions. This means that both Obama’s and McCain’s calls for drilling are specious. There are the many coastline states that have prohibited offshore drilling. They recall California’s 1969 experience that fouled 35 miles of beaches. Any oil that is recovered would have only the most modest effect on oil prices and would do nothing to move us to a post oil economy. Even if there were no oil spills, the drilling would have a major environmental impact on our seaboards.

What the nation needs is a comprehensive energy strategy that moves us into a post oil economy while simultaneously moderating greenhouse gas emissions. It may not get much in the way of votes, but if the nation had a strategy like this backed up by money and commitment it would be good not only for the nation and the environment, but good for the economy too. It would stimulate growth in jobs that are environmentally friendly.

However, I did like Obama’s speech today in Berea, Ohio. Obama pointed out a few days ago that a great way to reduce oil consumption is for drivers to make sure their car is tuned regularly and their tires are properly inflated. Republicans for some reason latched on to it as a crazy idea and began handling out tire pressure gauges to draw people’s attention to the proposal. This attitude is particularly odd coming from Republicans, who are reputedly big on individual responsibility. His proposal is not laughable; it is effective and can be made workable.

If I were running for president, I would do more than just suggest that Americans do these things. I would give modest tax deductions or credits for having your car tuned. Aside from the 1-3% reduction in oil consumption, if Americans practiced this regularly, it would help get Americans into the habit. Most Americans are too busy to be proactive about car maintenance. Knowing they can get a tax deduction for being kind to the environment (and their wallet) can lead to a pattern where most people will have their cars tuned regularly.

Getting people to check their tire pressure regularly can be accomplished too. We could offer modest credits for gas stations that add or expand air pressure hoses. A tire pressure center should provide tire pressure gauges on site and easy guides for determining the correct tire pressure for your tires. Why not add a penny to the gasoline tax but offer a penny a gallon rebate for checking your tire pressure within one hour of filling your tank? Simply insert the same credit card you used for your gas purchase to activate the tire pressure system at your gas station where you filled your tank to claim your credit. These modest steps, along with regularly increasing CAFE standards are pragmatic steps toward energy independence.

I suspect that before this campaign is over we will see many more accommodations by both Obama and McCain to lure in swing voters with proposals that are stupid. I just hope that these latest proposals from Obama are not serious and are discretely dropped when, as I expect, Obama wins the election in November.

August 5th, 2008 at 07:51pm Posted by Mark | Politics 2008 | no comments

The hard road ahead

In 1980 at the tender age 23, I voted for John B. Anderson for President. Anderson was an independent candidate. Anderson was full of great ideas that were politically non-starters. One of his ideas was to increase the federal gasoline taxes by fifty cents per gallon. This was at a time when you could buy a gallon of gasoline for under a dollar a gallon. His rationalization was that the tax would serve three purposes: reduce our dependence on foreign oil (we had already been through two oil shocks during the 1970s), give us incentive to practice conservation and provide the funds needed to achieve energy independence. This great idea killed his campaign. He started his campaign at above 25% support in polls and ended up with 7% of the vote.

In one of life’s little ironies, just a month after the tragic events of September 11th, John Anderson showed up at my church and gave a talk. (See picture.) He was then about to retire as president of the World Federalist Society (now Citizens for Global Solutions). There was time for questions and answers after his lecture. I went to the podium, looked him in the eye and told him I proudly voted for him in 1980. I mentioned his gas tax proposal and opined that events had sure proven him right. Had we taken the unpopular steps he suggested in 1980 and imposed on ourselves a fifty cent a gallon gasoline tax, the events of September 11th likely could have been avoided. It was President Reagan after all who strategically aligned us with Saudi Arabia, providing a compact of military arms for a dictatorial state for the assurance of low oil prices. It was our support of this oppressive state that provided the animus for Osama bin Laden, a citizen of Saudi Arabia to target the United States on September 11th. If only we had the courage to follow through on Anderson’s courageous idea, three thousand Americans who died that day would still be alive and we might also be energy independent today.

Change is never fun and serious change is usually resisted. Those who embrace inevitable changes though often end up ahead in the end. Why has the Euro been doing so well while the U.S. dollar has been in the toilet? It is because in Europe they were prepared for a changing world. Gasoline has been highly taxed for decades in Europe specifically to discourage the automobile and to encourage public transportation. If you have been to Western Europe, you know that it has phenomenal public transportation. Right now, Europe is also leading the way on global climate change. Among many initiatives, it is markedly reducing its carbon footprint through fuel efficiency standards in place today that we will not have in ten years. Not surprisingly, the European economy is doing rather well in shaky economic times. Its currency is so valuable because Europe as it is configured and managed is very well matched for our changing times.

What has the United States done? It would be polite to say we have been dragging our feet. In reality, we have largely ignored the environment and concentrated on glorious selfishness instead. We started an unnecessary and foolish war in Iraq that is bankrupting us. We have pretended to care about global climate change while doing almost nothing to address it. We have blithely ignored the consequences of our increased oil dependency. Public transportation, which is still inadequately funded, remains focused on highways and bridges. We have thrown mostly chump change at mass transit solutions.

It’s karmic payback time. In the years to come, we are going to get sticker shock at the cost of having ignoring these problems for so many decades. We may come to resemble Haiti in the sense that we will ask our leaders to deliver the impossible: address climate change, keep our taxes low but not allow our standard of living to change. If the 1980 election is any guide, when we discover our current leader cannot do it, we will elect someone else who will claim they can, but who will also fail.

Whether we like it or not, the times, they are a changing. We can choose to adapt to this new reality or, more likely, continue to try to have the same selfish lifestyle we always have had and take half measures. However, more of the same will only result in additional unnecessary pain. It is time to acknowledge that our future lives will be markedly more downscale than our current lives are. This transition is unlikely to be much fun. As a nation, we are in the initial phase of an extended high colonic.

Here are some likely outcomes that I see. Traditionally, the cost of living out in the country has been cheap. That is going to change. Life in the country may become a privilege for the rich. To live in the country you will have to pay the freight: ever-higher gas prices. As those living further out feel the gas squeeze, they will naturally choose to live closer in. By doing so, they will be less affected by the cost of oil. They will also be closer to jobs. By living closer in, they will have access to public transportation so they can get by with one or no cars. This will allow them to have a comparatively higher standard of living and more job security than if they live in the country or in a far-flung exurb.

This will work for a while. Of course, economic factors will make most who do not live around a city also want to move in closer too. This means land prices will rise the closer you are to urban areas. Which means the cost of living will go up around cities too. You will feel damned either way. As I suggested in a recent post, people watching these mega-trends are already making the smart choices. They are moving in now while housing prices and interest rates are down. Their houses are going to be smaller than they envisioned, but they will gladly pay this price for convenient access to jobs and transportation.

Energy costs will continue to rise, which will drive everything toward energy efficiency. Energy efficiency though will not come cheap. New houses will probably need more than just better insulation and highly energy efficient windows. They will need solar panels on the roof. It will be built into the building codes. Houses will be required to be built with LEED Silver or better standards. This will raise the cost of housing making it that much harder to afford to buy a house in the first place. Older houses are probably too hard to retrofit to be LEED compliant. Eventually they will become too expensive to inhabit, so they will have to be replaced with energy efficient houses. More likely, they will be replaced with condos and apartment communities. Demand will require it.

We will require readily accessible public transportation. This will mean heavy rail, light rail, trains, buses and bike trails everywhere and maybe even the return of trolleys. This cannot be done for free. It will require substantial tax increases. In short, we are all going to feel very squeezed which will have the consequence of us having lifestyles that will seem markedly poorer than our parents. We will probably resent this new reality.

What I have outlined is something of a best case. What actually happens is likely to be quite different and probably worse. Certain trends like people migrating from far-flung areas to closer in areas are inevitable. Most likely, we will try incentives like tax credits to ease the pain. Yet tax credits still have to be paid from somewhere. In short, to reinvent society takes incredible amounts of money. We will pay it one-way or the other. It can be intelligently accomplished through taxes and careful planning, or unintelligently through reaction to market forces. It is a road that we will have no choice but to traverse. However, we do have a choice on how painful it will be. As with most things, the sooner you start and the more intelligently it is accomplished, the less painful it will probably be.

I suspect that if a candidate today proposed a fifty cent a gallon tax on gasoline, he would get the same response at the voting booth that John Anderson received in 1980. Unfortunately, because we have dragged our feet for thirty years, the cost of procrastination has gone up dramatically.

So get ready. Our economic foundations are starting a seismic shift that will affect every one of us. Are you going to work with these natural forces? Or are you going to resist them? We all need to realize that to adjust to these new realities will require extraordinary sacrifice, akin to what our parents went through during World War II, but unfortunately lasting much longer. Over the next fifty years, we will have to reinvent ourselves as a society and as a world. I hope that this time we find the determination to do it intelligently. If government of the people, by the people and for the people is not to perish, we the people are going to have to come to terms with these costly changes that are already unfolding all around us.

May 8th, 2008 at 07:46pm Posted by Mark | Sociology | no comments

Trapped in exurbia

As a part time prognosticator, I sometimes get it wrong. Sometimes I get it right. When I get it right, it is not necessarily a reason for feeling smug. Today, I reread this post that I wrote back in 2005. I wrote it when the oil squeeze was just beginning. I remarked how uncomfortable I felt seeing new exurbias sprouting up in nearby Loudoun County, Virginia because virtually all of them are inaccessible to public transportation. I wondered what would happen to these communities with continued increases in price of oil or its unavailability.

Now we are finding out, and the answer is scary, as this NPR story reports. Ashburn, Virginia is in Loudon County, Virginia and part of the greater Washington D.C. metropolitan area. It is one of those newly built exurbias. What is happening in Ashburn is that home prices are tumbling much faster than the national average.

Realtor Danilo Bogdanovic surveyed two rows of neat, new, brick townhouses on Falkner’s Lane. “These were selling for about $550,000 at the peak, which was about August ‘05, and they’re selling right now for about $350,000,” Bogdanovic said. “Fifty percent of this community has been ether foreclosed on or is facing foreclosure.”

Coincidentally, my hair stylist lives in Ashburn. Today while she was cutting my hair, we were chatting about high gas prices. If she and her husband had to do it over again, she said, they would have never moved to Ashburn. Their gas prices are driving a big dent in their budget. Yet, I learned, moving in closer was not an option. They would lose too much money, because their house was worth less than they paid for it. If her house is on Falkner’s Lane, I can understand why she would feel blue, since she might now own a house worth $200,000 less than what she paid for it.

What might turn things around? As I implied back in 2005, some public transportation might help. That is not to say that it doesn’t exist in Loudoun County, but it is very limited and assumes you commute to work in Washington, D.C. A resident of Ashburn could drive or bike to the Dulles North Transportation Center and from there take an express bus into Washington D.C. This bus is not cheap. It costs $6.00 each way with a smart card, or $7.00 if you pay cash.

What would someone in Ashburn do if they needed to commute to some other job center like Tyson’s Corner? Perhaps they could catch another bus at the West Falls Church Metro Station, where the bus stops on its way into Washington. What if they need to take public transportation to go to a doctor’s office in Reston, Virginia? It might be technically possible at certain times of the day, if they can make it work with the commuter bus schedule and make their bus transfers on time. What if they need to take public transportation to go to the grocery store? As best I can tell, there are no such routes. Even if routes were put into place, given that Ashburn is such a sprawled out community they might have to walk a mile or more just to get to a bus stop.

For all practical purposes, residents of Ashburn are stuck. Owning a car is required to live there. Their lifestyle is held hostage by the price of oil. Oil prices may seem astronomical, but they are fortunate that gas is available at any price. Without it, Ashburn would become a gigantic modern ghost town. Combine rising oil prices with a falling dollar and the negative net worth of so many residents of Ashburn and you end up with houses that are worth $200,000 less than they were just three years ago. You have whole communities of people with negative equities in their houses, unable to move and who are one job loss away from financial catastrophe.

My own house is about three miles away from Reston. Reston is a major source of employment and has thousands of great jobs for knowledge workers. In the unlikely event that you lose your job at one company in Reston, you can probably pick another one like it somewhere else in Reston. A Fairfax Connector bus serves my neighborhood, but it operates during rush hours only. However, my house is just three to five miles away from thousands of jobs, not ten or fifteen miles away like in Ashburn. Where I live, you can probably get to your job without a car if needed. I bicycle to work, which is three miles away, three or four days a week. Consequently, gas prices affect me much less than most commuters. Yet even if I worked downtown, I still would not be too badly inconvenienced. I could bike to the Herndon Monroe Park and Ride, which is also three miles away, or grab the 929 bus, which runs by a road a few hundred feet from my door. Once at the Herndon Monroe Park and Ride there are plentiful express buses that will take me to the West Falls Church Metro station. From there I can get to any place on the Metro system. If I needed to take a bus to nearby Reston, Herndon, or even some of the local malls, I can transfer at the Herndon Monroe Park and Ride. Obviously, I could get to these places more quickly by car, but it is possible. The same cannot necessarily be said about communities like Ashburn.

My neighborhood is not immune to the real estate slowdown either. Our house has lost about $75,000 in value since its 2005 peak. However, that is $75,000 though, not $200,000. There are plenty of houses for sale on my street, virtually all in excellent condition. We live in a terrific family neighborhood where owners take pride in their houses. I suggested to my stylist that they should move to a house on my street. She would be two miles from work so the cost of gasoline would be insignificant. However, with the negative equity in her house, moving is out of the question. Where would she and her husband find the money to pay off their loan on closing?

I do not think these underlying dynamics are likely to change. We are at the beginning of a fundamental transformation of America. This means our love affair with the automobile is likely to change dramatically. At best, I expect oil prices will stay about where they are now. Therefore, for many homeowners out in exurbia the financial squeeze, already bad, is likely to get much more painful. The long-term trends though are clear. Unless you can work from your home or can find employment close by that pays your bills, do not buy in the exurbia. If you are in the exurbia and can move in close, this is the time to do it.

Housing prices are down substantially in good neighborhoods like mine that are close to jobs and public transportation. Because prices are down and mortgages are very affordable, now is an excellent time to buy in these neighborhoods. It may not be easy to sell your current house, but as I learned in 1993 if you lower the price enough you can sell any house. You can buy a better and closer house at a substantial discount and be primed for appreciation during this seismic realignment of society. In addition, selection is plentiful.

To the many residents of Ashburn and similar far-flung communities who are feeling the squeeze, you have my sympathy. If I lived in Ashburn, I would still move closer in if I could find a way. The long-term housing dynamics for Ashburn and places like it look dismal. You may find yourself inhabiting a modern ghost town.

April 25th, 2008 at 09:25pm Posted by Mark | Best of Occam's Razor, Politics 2008 | one comment

The End of Cheap Oil

I subscribe to National Geographic. Generally I just flip through the magazine and let my eyes linger on their lush pictures. But occasionally I actually read an article. Their recent article The End of Cheap Oil got my attention. The author makes a convincing case that oil is going to get increasingly more expensive over time simply because of supply and demand. The world’s proven oil reserves are well known. It is unlikely we will discover any huge new oil reserves. If we do then with the world’s thirst for petroleum increasing every year any new reserves won’t last for long.

China, India and Indonesia are emerging as major industrial powers. They are greatly adding to demand for the world’s oil supply. Their demands will only increase. The increase in demand of course also leads to more incentive to find new sources of oil. While we are unlikely to find too many new sources of oil, we’ll find more expensive ways of extracting oil. The net effect will be the same: the era of cheap oil will end.

We may have already seen the beginning of the end when oil prices rose this spring to above $40 a barrel. They have since gone under $40 a barrel and then moved over $40 a barrel again. Certainly a major oil producer like Saudi Arabia can flood the market with oil and reduce the short-term cost of oil. But such tricks won’t last forever. Increasingly oil-exporting countries will have little reason to increase supply since it only cuts into their own revenues.

The United States is a very prosperous country. If oil becomes more expensive we are in a good position to simply pay the higher prices. This will be to the detriment of emerging economies like China. (China may decide it must have oil and invade countries like Indonesia to ensure a steady supply.) The effect worldwide could be very severe inflation. That in turn can cause recessions, depressions or more likely the bugaboo from the 1970s: stagflation. Stagflation is slowing growth in the economy accompanied by a general rise in prices.

Arguably we may already be experiencing stagflation. Currently our GDP is down from its somewhat feverish levels a couple quarters ago while prices have risen steadily. (Actually wages haven’t kept up with increased prices this year, which means that the average wage earner in America is effectively losing money.) Those of us who lived through the 1970s oil shock remember what stagflation was like: 18% interest rates, up to 14 percent annual inflation, an anemically growing economy and wages always lagging a few percentage points behind inflation. All this and gas lines too. It was not a fun time.

Most of us don’t really understand how our economy is tied up around oil. I think we understand that it takes oil to create the gasoline used to power our cars. But we don’t think much beyond that. We don’t understand the huge inflationary effect of a rise in oil prices. And yet gasoline powers the trucks that deliver our food. It delivers the fertilizers so farmers can grow crops in the volumes needed. It runs our tractors. It powers our airplanes. We don’t have coal-burning trains anymore: locomotives require lots of oil too to move freight. Plastics, packaging, many drugs, even a lot of our clothes are made from petroleum products. Petroleum is pervasive and it is everywhere. Our economies are totally geared around its plentiful access, ready availability and reasonable price.

This is why the end of cheap oil is so very scary: we have nothing with which to replace oil. Just think of the impact on the airline business alone. If a barrel of oil reached $150, would we have a commercial airline industry? Would we fly from coast to coast if it cost us $1500 each way? What would be the ripple effect to our economy? How many people would be unemployed if our commercial airline industry shrunk to 20 percent of its current size?

Clearly we have other sources of energy available, including coal (which produces most of our electricity) nuclear and hydroelectric. But as my friend Frank Pierce has pointed out, oil has some compelling advantages because it is so very portable. An airplane cannot be tethered to the ground to an electric cord. There are no alternatives for extracting so much energy in such a convenient and portable liquid form. Similarly, although hybrid cars offer some relief from an oil shock, eventually cars may become too expensive to drive.

Hopefully the end of the oil age will be a gradual process. But it appears to be coming nonetheless and we are not prepared. In fact except for a few in the know most people have no idea that a persistent long-term oil shock is in the horizon of our lifetime. Currently there is hardly any research into petroleum equivalents. (This looks interesting, but it is unlikely we could find enough biomass to satisfy our insatiable thirst for petroleum.) And our appetite for oil seems boundless. It doesn’t seem like any person alive prefers to live in a third world country. They’d much rather live in industrial economies. Millions cross borders annually just to eke out a slightly better lifestyle in a more developed country. Yet the only model we have for a modern economy is oil based.

Those of us living in modern economies would have no idea of how to survive in an agrarian economy. Indeed we really can’t. There are too many of us to feed now. We absolutely depend on oil to run our tractors and till our fields and fatten our cattle so that we can support 300 million plus people just here in the United States. Without it we can predict mass starvation, brutality, anarchy, perhaps war.

If we had enlightened leadership we would be have a well-funded Manhattan-like project. Its goals would be not just to reduce our dependence on foreign oil, but also to find ways to have an oil-less economy. And yet as always we seem to be clueless. The Republicans think that finding oil in the Arctic National Wildlife Refuge is part of the solution. If so it is a tiny part and buys us perhaps a few years of relief from the coming oil shock. Even if we had a huge oil field under the Arctic National Wildlife Refuge we’d still be importing most of our oil. We simply cannot sustain our economy with our own oil.

Hopefully the oil shock will be a tempered shock. Hopefully prices will rise slowly enough to avoid huge rounds of inflation. But there are no guarantees and it would be foolish to prepare for this rosiest of scenarios.

This National Geographic article makes me wonder what sort of retirement I will have, or if I could afford to retire at all. Will the coming oil shock reduce the value of my pension by 50 percent or more? Will I at age 70 be homeless somewhere because I cannot afford to keep a roof over my head?

I wish we had real leadership in Washington. Even the Democrats seem to have only a dim idea of this very likely future. It seems everyone in government is ill informed or living in denial. I wish I could shake them up. Research money spent now to develop ways to sustain a petroleum-less economy might well mean the survival of our nation in the 21st century. Petroleum equivalent tools and products that become available when this oil shock happens could make for some very rich inventors.

Maybe that’s what I need to do: become the Thomas Edison of the petroleum-less age. Like everyone else I don’t want this oil shock to happen in my lifetime. I like the way my life is ordered right now. I want to maintain this lifestyle until the day I die. But increasingly I see this freight train headed right toward us. I wish while there is still time that we were smart enough to prepare for this inevitable era.

July 9th, 2004 at 09:37pm Posted by Mark | Technology | no comments